GRP Rainer LLP

The Evaluation of Multiple Voting Rights in a Public Partnership - Company Law

If the articles of association of a public limited partnership grant the general partner multiple voting rights in the context of passing resolutions to change the articles of association, this is not necessarily permissible.

Cologne, NRW -- (SBWIRE) -- 09/06/2013 -- GRP Rainer Lawyers Tax Advisors, Cologne, Berlin, Bonn, Bremen, Düsseldorf, Essen, Frankfurt, Hamburg, Hanover, Munich, Nuremberg, Stuttgart and London UK http://www.grprainer.com/en explain: Multiple voting rights granted pursuant to the articles of association of a public limited partnership to the general partner that also allow for change to the articles of association are not, in the view of the Regional Court of Freiburg (LG), valid (Az.: 12 O 133/12). In the instant case, the articles of association of a public limited partnership contained a clause which granted the general partner multiple voting rights. According to this, the general partner, who did not partake in the profit and loss of the partnership but instead received remuneration independent of these factors, was also entitled to multiple voting rights with respect to resolutions to change the articles of association. The investors brought an action against these provisions and the Court has now found in their favour.

Consistent with the nature of a public limited partnership, the structure of the partnership and the number of limited partners in such an entity are not yet fixed at the time of its formation. This also entails that partners are not able to exert influence on the existing articles of association; they only have a capital interest in the limited partnership. It is precisely for this reason that it is important for the investors that they are not disadvantaged by the pre-formulated articles of association. In order to protect partners and prevent parties from being disadvantaged, it is possible carry out an examination of the content of the articles. In principle, the provisions in articles of association are void if they unfairly disadvantage the limited partners.

In the view of the Freiburg LG, provision concerning multiple voting rights represented this kind of unfair disadvantage. The defendant’s argument, that it carried the entire economic risk as general partner and therefore the clause on multiple voting rights was reasonable, was unfounded in the judges’ opinion. Although it is generally possible to grant special rights, the benefits must also be accompanied by appropriate risk.

Particularly in the field of company law, legal laymen often find themselves faced with several questions. An experienced lawyer can help examine the legal situation and enforce potential claims. Partners are protected by the principle of equal treatment, according to which provisions that entail an unfair disadvantage are invalid. Aggrieved parties should not accept unequal treatment but instead obtain legal advice and have their possibilities analysed.